VAT: registration threshold set at £85,000

Registration and deregistration thresholds

The taxable turnover threshold, which requires a person to register for VAT, increases from £83,000 to £85,000 per annum.

The threshold below which a VAT-registered person may apply to deregister increases from £81,000 to £83,000 per annum, and the relevant registration and deregistration threshold for Intra-Community acquisitions will also be increased from £83,000 to £85,000 per annum.

All these changes will take effect from 1 April 2017 and will prevent around 4,000 businesses from having to register in the financial year 2017 to 2018.

Rates

The positive rates of VAT are unchanged, so the standard rate remains at 20% and the reduced rate at 5%.

Split payments model

The government has continued to consider introducing alternative methods of collecting VAT where existing methods have been abused. This is in addition to the measures it has already introduced to address the problem of overseas businesses selling goods to UK consumers via online marketplaces without paying VAT.

On 20 March 2017, the government will publish a call for evidence regarding the case for a new, safer method of collecting VAT relating to online sales. The method will make use of technology to take the VAT out of such transactions at the point of purchase. This type of arrangement is known as split payments.

Consumer mobile phone services

The current use and enjoyment provision for mobile phone services used by consumers will be removed.

The new measure will ensure that services used outside the EU are brought within the scope of VAT. Furthermore, mobile phone companies will no longer be able to use the inconsistency to avoid UK VAT. This will bring UK VAT rules in line with the internationally agreed approach.

Fraud in the construction sector

The government has announced that on 20 March 2017, it will publish a consultation document on a range of policy options to address fraudulent activity relating to the supply of labour in the construction industry.

Possibilities could include introducing a reverse charge (operating in the same way as services bought in from abroad) requiring the recipient of the services to account for the VAT. The qualifying criteria for gross payment status within the Construction Industry Scheme will also be reconsidered.

The objective of any changes would be to strike a balance between effective targeting, simplicity and minimal impact on businesses, at the same time as eradicating the likelihood of fraud as much as possible.

Penalties in fraud cases

In Autumn Statement 2016, it was announced that a new penalty for cases of fraud would be introduced in Finance Bill 2017. That has now been confirmed.

A consultation process followed the issue of draft legislation and as a result, some minor changes have been made for the purposes of clarity and also to limit the naming of a company officer to cases where the amount of tax due exceeds £25,000.

The new penalty will take effect once the Finance Bill receives Royal Assent.

Flat rate scheme

With effect from 1 April 2017, businesses eligible to use the flat rate scheme but which are classified as ‘limited cost' businesses, will have to account for VAT at 16.5% of their relevant gross turnover.

A ‘limited cost' business is one which spends the following on relevant goods:

less than 2% of its VAT flat rate turnover, or

greater than 2% of its VAT flat rate turnover but less than £1,000 per year.

Relevant goods are those which are used exclusively for business purposes, but exclude the following:

vehicle costs including fuel, unless the business is operating in the transport sector using its own, or a leased vehicle

food or drink for the business or its staff

capital expenditure goods of any value

goods for resale, leasing, letting or hiring out if the main business activity is not ordinarily the selling, leasing, letting or hiring out of such goods

goods for re-selling or hiring out, unless selling or hiring is the main business activity.

The measure is designed to ensure fairness of treatment for businesses which are considered to be receiving an unfair advantage from the classification and rate they currently use.

Notice 733 provides guidance on the transitional rules for those operating the basic turnover method or the cash based turnover method at paragraphs 8.2 and 9.7 respectively in that is explains the treatment for invoices issued or cash received after 23 November 2016 and before 1 April 2017. Those whose returns straddle 1 April will have to split their accounting between the old and new rates.

If, in any period, the cost of relevant goods is more than the ‘limited cost' threshold, the business may use the normal flat rate scheme percentage for that period.